Wednesday, February 11, 2009

Bookkeeping: Beginning Starter Stake in First National Financial (FNF)

With the "heroic" efforts our government is going to embark on to use my tax dollars to entice people to begin daytrading houses again, I am slowly building up a portfolio of "home related" stuff. The traditional routes are (a) home improvement related retail (Home Depot (HD) or Lowe's (LOW)) of which I have no interest because the U.S. consumer is dead..... or (b) a homebuilder (of which I own Lennar (LEN) only because its a trading vehicle that hedge funds run up every few weeks)

I much prefer two other out of the mainstream areas for actual "investing" (if anyone still does that anymore) - one that I added a few weeks ago and the other I've been watching for a few months.

We already own Ocwen Financial (OCN) which is a way to play the government pressured "mortgage modification" boom I see coming - while it will peeve me to no end to see principal reductions (which is the only way you are really ever going to help people) for folks who are behind on payments in homes they cannot afford; while those of us current on our mortgage get zero help.... I might as well benefit from the stock market side as I stew about it. Already Freddie Mac has turned to Ocwen for phase one [Feb 3: Freddie Mac to Outsource Delinquent Collections -Ocwen Financial Chosen to Start] - the stock is a slow mover but stable as heck. For this market, that's a good thing. Hoping to see this fall to mid $8s personally....

The latter play are the title insurers which we highlighted in December [Dec 26: Ways to Play the Housing Boom - Title Insurers]. The thesis here is we are going to start seeing a lot more transactions in real estate - not because there is any recovery but because an onslaught of foreclosures at 50%+ off prices is finally going to make a nice market. And as a title insurance firm, you don't care what the price is - you just want transactions. I had been watching this market for quite a while but finally got confirmation in First National Financial's (FNF) earnings report that this thesis I was proposing was sound. [Feb 4: First National Financial Seems to be Turning the Corner]

Absolute total open order counts more than doubled in December versus their November level, with per day open orders of 9,300 increasing by approximately 65 percent. January open order counts improved further from the significant December increase, as we opened approximately 14,200 orders per day in the month of January, more than a fifty percent increase over December.

The stock took off after the earnings report and now has come back to Earth a little and is down 7% today... the first support is the 20 day moving average at $17. I am putting a very small line in the sand here just to get this position on my sheets, but would much prefer to see a fall to $14.50-$15.00 where I'd much rather prefer to build a position. So today, just for "keeping it on my radar" purposes I created a 0.2% stake in the $17.30s - again with the hope it falls hard from here so I can really build a nice stake. If it falls through $17 it should get to my target range.

So our strategy in this area
  1. Ocwen - low volatility mortgage workouts that the government is going to be pressuring banks to do
  2. First National Financial - medium volatility title insurance; all it requires is a lot of foreclosures start changing hands
  3. (pick a homebuilder ...any name of 6-7 will do as a proxy) - high volatility; daytraders/hedgies play these like penny stocks or financials, buy dips - sell Kool Aid moments
  4. Avoid retailers dealing with home improvement because many Americans are going to be struggling to keep a roof over their head - they won't be busy redoing a kitchen. But these will rally when Kool Aid about "the 2nd half recovery" is in the air.
Long Lennar, Ocwen, First National Financial in fund; no personal position

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